Charles A. and Marian L. Derby, et al. - Page 11

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          to restructure the provision of health care in the United States            
          in 1994 by the Federal Government, including the creation of some           
          form of national health insurance.                                          
               Against this backdrop, petitioners concluded that practicing           
          medicine as independent or small group practitioners using an IPA           
          would no longer be economically viable for them.  Instead, they             
          decided, it would be advisable to affiliate with a larger health            
          care organization such as an HMO or a hospital.  Affiliation with           
          a larger organization provided a more secure means to practice              
          medicine in a managed care environment, in petitioners' view, as            
          it would provide them with a larger patient base for spreading              
          the risk of loss being transferred to them by health insurers,              
          greater capital resources for the same purpose, the benefits of             
          greater bargaining leverage in negotiating managed care                     
          contracts, and greater efficiencies and economies of scale in               
          providing care.                                                             
               To facilitate the affiliation, it was also decided that                
          certain of the UHMG member physicians, including petitioners,               
          should form a medical group.9  Unlike an IPA, a medical group               
          involved the consolidation of the member physicians' medical                
          practices, so that patient revenues were pooled, expenses were              
          shared, and salaries were paid to member physicians.  The newly             

               9 Not all members of the UHMG IPA were asked to join the new           
          medical group, for various reasons, including that his or her               
          medical specialty, or personality and/or practice style, was not            
          perceived to be a good fit.                                                 

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